Leap Doesnt Jump at MetroPCS Offer

The wireless carrier rejects a $5 billion merger offer.

Leap Wireless has rejected MetroPCS takeover offer that would have created the nations fifth largest wireless carrier, claiming that the tax-free stock swap valued at more than $5 billion was "completely inadequate in a number of critical areas."

In a Sept. 16 letter from Leap President and CEO S. Douglas Hutcheson to MetroPCS, Hutcheson said the MetroPCS offer did not adequately reflect the companys growth prospects. Hutcheson also questioned MetroPCS ability to grow its business in line with shareholder expectations.

"Your proposal significantly discounts the contributions Leap would make to the combined company," Hutcheson wrote. "In addition to the significant growth potential described above, Leap would bring the larger share of the licensed population and more than half of the covered population that would be served by a combined company."

Leap, of San Diego, said it had long considered a strategic alliance with MetroPCS, which, like Leap, offers flat-rate wireless service with no service contracts. According to Leap, the company has previously considered a possible merger with Dallas-based MetroPCS in addition to reciprocal roaming agreements and the swapping of markets or spectrum.

"All of our varied and numerous efforts were to no avail," Hutcheson wrote. "Given our broad and repeated efforts, we were surprised by your sudden offer and the fact that you decided to make the offer publicly before even attempting to enter into substantive discussions with us."


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Leap also complained that the MetroPCS offer contained no premium for Leap shareholders and misallocated the value of synergies of the deal to MetroPCS shareholders. Under the MetroPCS offer, each outstanding share of Leap common stock would be exchanged for 2.75 shares of MetroPCS common stock.

MetroPCS said the exchange rate creates a value of $77.89 for each share of Leap. MetroPCS would also assume about $2 billion of Leaps debt.

"We are disappointed that Leap has chosen to reject our strategic stock-for-stock tax-free merger proposal to create a new national wireless carrier," Roger D. Linquist, MetroPCS chairman and CEO, said in a statement. "The contacts we have had with a number of Leaps shareholders indicate that they want to see a combination of our two companies happen without unnecessary delay. It appears that Leaps Board is ignoring the will of its shareholder base."

Linquist said the Leap rejection does not change MetroPCS opinion of the proposed merger, but the company will not take any action, "We believe it would disadvantage our shareholders."

In an analyst note, Raymond James Robert Baird said he was "surprised at the overall tone of the rebuttal letter and believe[s] it may be difficult for both sides to reach a merger accord."


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